Zoho founder Sridhar Vembu warns of AI-driven tech bubble bigger than 1999

New Delhi, May 31. Sridhar Vembu, founder and chief scientist of Zoho Corporation, has cautioned that soaring valuations of some of the world's largest technology companies, fuelled by investor enthusiasm around artificial intelligence (AI), exhibit characteristics of a market bubble that could eclipse the dot-com era.

In a post on social media platform X, Vembu highlighted the price-to-sales ratios of major technology firms, arguing that current market valuations appear increasingly detached from underlying business fundamentals.

He cited companies such as Nvidia, Apple, Alphabet, Microsoft, Meta Platforms and Micron Technology, noting that several are trading at elevated multiples of their annual revenues.

According to Vembu, Nvidia currently trades at around 20 times sales, while Apple, Alphabet and Microsoft command price-to-sales ratios of roughly 10 to 11 times. Meta stands at about 7.5 times sales, while Micron trades near 19 times sales.

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Valuation Disconnect Raises Red Flags

To underline his concerns, Vembu referenced remarks made by Scott McNealy following the collapse of the dot-com bubble in the early 2000s. McNealy had argued that investors paying ten times a company's annual revenue would need extraordinary performance and profitability over many years to justify such valuations.

Drawing parallels with the late-1990s technology boom, Vembu said the current environment reflects "an insane bubble" and suggested that it may be even larger than the one witnessed in 1999.

"Price to sales ratio for big tech (not price to earnings): Nvidia: 20x, Apple: 10x, Alphabet (Google): 11x, Microsoft: 10x, Meta: 7.5x, Micron: 19x," he said.

Lessons from the Dot-Com Era

"As Scott McNealy of Sun Micro said back in 2002: 'At 10x revenues, to give you a ten-year payback, I have to pay you 100% of revenues for 10 straight years," Vembu added.

This is an insane bubble, even bigger than 1999, he mentioned.

His comments come as AI-related stocks, particularly semiconductor manufacturers and software companies, have witnessed a sustained rally amid expectations that artificial intelligence will drive significant growth and productivity gains across industries. The AI boom has propelled several technology companies to record market capitalisations and helped push major stock indices to new highs.

–IANS

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